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    Boston Capital

    Medical businesses await Supreme Court ruling on Obamacare

    It doesn’t take a genius to predict the big story of next week.

    The Supreme Court is expected to finally to release a decision in the court case challenging President Obama’s health care law. Readers and viewers will be inundated in coverage. Consider yourself warned.

    The court ruling is a tricky thing to anticipate because there are more than two possible findings. The law could be upheld, struck down entirely, or rejected in part.


    Many business interests have a lot riding on the court decision, including the locally important medical device industry (more on that below). The hospital industry may become the biggest winner or loser next week, depending on the outcome in court, and investors will feel the impact.

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    The ruling will have financial implications for all kinds of hospitals across the country (but not in Massachusetts — where local reform and near-full health coverage blunt the impact). For investors, the decision will affect the finances, debt ratings, and stock prices of for-profits spread out across the country.

    We don’t have a lot of experience with for-profit hospitals in Massachusetts. Most local hospitals are nonprofit institutions, and the one large for-profit health system, Steward Health Care, only recently assembled a 10-hospital network in Massachusetts.

    But there are more than 1,000 for-profit hospitals operating across the country. Those hospitals have much to gain or lose in court because insurance coverage mandated by the health care law would turn millions of financially risky uninsured patients into certified paying customers. Revenues go up, and bad-debt write-offs go down — that’s a pretty powerful business proposition.

    The stocks of for-profit hospital companies are in the dumps these days. A squeeze on government payments for Medicare and Medicaid patients has hurt. Ditto the weak economy. Uncertainty over the court ruling isn’t helping.


    Consider one example: Vanguard Health Systems Inc., a company that counts St. Vincent Hospital of Worcester and MetroWest Medical Center in Framingham in its nationwide portfolio of medical facilities. Vanguard marked its first anniversary as a public company on Thursday. Those shares have slumped 56 percent since the IPO.

    Hospital stocks might jump 10 percent if the court supports the US health care law, according to analysts I called. Prospects for their profit margins would improve, and that could lead to higher price-earnings stock ratios — a double boost.

    But even the best possible outcome would come with stock market caveats. For one, the election of Mitt Romney as president could still turn everything upside down. Another looming federal debt ceiling standoff will hurt hospital stocks too.

    Now consider what happens if the Supreme Court clobbers the health care law next week. That great opportunity for hospitals will vaporize. Look ahead a few years: Do you really think Medicaid and Medicare reimbursement rates will perk up?

    Hospital stocks may slip further on bad court news. Moody’s Investor Service says that news would be “credit negative” for hospitals — which means their debt ratings could suffer. The loss of a big business opportunity would really hurt.


    The makers of medical devices face a very different problem. A 2.3 percent excise tax on their products — created to help pay for all the law’s new coverage — is scheduled to go into effect at the start of next year. Local device companies say the impact in Massachusetts may be $300 million.

    So what happens if the court throws out the insurance mandate next week? The tax plan would remain in place because the Supreme Court won’t review tax cases before those charges actually go into effect. Device makers would no doubt go to Congress to overturn the levy.

    The longer-term prospects for all kinds of health care businesses are challenging. An aging population will surely lead to more customers. But budget limits — especially constraints on Medicare and other government programs — will make it much harder to earn traditional profit margins.

    But hospitals and their budgets are the things to keep in mind next week.

    The Red Herring

    Money manager Dan Rice is retiring from BlackRock Inc. Rice appeared here Tuesday, in a column about apparent conflicts of interest between his energy stock BlackRock funds and an energy-related business he founded seven years ago. Rice had resigned as manager of five mutual funds, but it was unclear if he would continue to oversee institutional accounts. BlackRock said Thursday that Rice decided to retire while he and the company were discussing ways to “avoid any perception of conflict.”

    Steven Syre is a Globe columnist. He can be reached at